True cost of carbon cuts

IF KEVIN Rudd immediately signed Australia up for the sort of
medium-term carbon emissions cuts  25% to 40%  that the
UN wants the developed world to take on by 2020, what effect would
it have?

Here is one scenario. The first step would be a
market-determined carbon price, most likely through selling
emissions permits to business.

Economists say the carbon price would need to be about $30 a
tonne to have an immediate impact.

This would double electricity bills, with the rising cost
spilling over into consumer goods. Fuel prices would jump
significantly.

Based on estimates from the Australian Greenhouse Office,
pricing carbon at about $30 a tonne would boost costs by about 2.5
percentage points  a year's worth of inflation.

Melbourne University Professor John Freebairn says the rise in
cost to the consumer is not enormous, but adds: "It will make it
that much tougher for people on poverty lines unless they get
compensation, and you would expect wage earners to want a
compensating wage increase or a tax cut".

The good news is that the Government, armed with whatever
business is paying for carbon, would suddenly find itself in a
position to put some money back into people's pockets. Meanwhile,
business will have an incentive to undertake the expensive process
of converting its coal-fired power plants into gas-fired stations.
Sound easy?

Professor Freebairn says cutting emissions so deeply would also
require adopting more fuel-efficient cars, greening old buildings
at considerable expense and turning down our air-conditioners.

According to Monash University's Centre of Policy Studies, we
could cut emissions by 30% by 2050 in relative comfort without
turning to nuclear power. Anything sooner would involve greater
cost.

In this shorter time frame, just setting a price would not be
enough to cut emissions as deeply as proposed by the UN. It would
also involve the Government convincing the public that their own
inaction would ultimately be more expensive.